Dav-Con, Inc. v. State Bd. of Tax Com'rs
| Decision Date | 08 December 1998 |
| Docket Number | DAV-CO,No. 45T10-9510-TA-00114,INC,45T10-9510-TA-00114 |
| Citation | 702 N.E.2d 1137 |
| Parties | , Petitioner, v. STATE BOARD OF TAX COMMISSIONERS, Respondent. |
| Court | Indiana Tax Court |
Kenneth D. Reed, Abrahamson, Reed & Adley, Hammond, for Petitioner.
Jeffrey A. Modisett, Attorney General, Ted J. Holaday, Deputy Attorney General, Indianapolis, for Respondent.
Dav-Con, Inc. (Dav-Con) appeals the final determination of the State Board of Tax Commissioners (State Board) assessing not-owned business personal property located on its premises as of March 1, 1992 pursuant to this Court's remand order in Dav-Con, Inc. v. State Board of Tax Commissioners, 644 N.E.2d 192 (Ind. Tax Ct.1994) (Dav-Con I)
I. Whether the State Board's final determination with regard to the March 1, 1992 assessment of not-owned business personal property was without substantial evidentiary support and/or arbitrary or capricious.
II. Whether the State Board erred when it applied a twenty percent penalty to the amount Dav-Con underassessed its not-owned business personal property.
Dav-Con is an Illinois corporation engaged in the business of steel processing and storage. Dav-Con operates a plant in Hammond, Indiana. 1 Dav-Con challenges the final assessment determination made by the State Board after this Court remanded the assessment of Dav-Con's not-owned business personal property. In Dav-Con I, Dav-Con appealed the final determination to this Court arguing, inter alia, that the State Board's assessment was without substantial evidentiary support and that the State Board erred when it imposed a twenty percent undervaluation penalty on Dav-Con.
On remand, the Court ordered the State Board to base the assessment of the steel that was in Dav-Con's possession on the steel's actual cost rather than its value. The Court also held that Dav-Con failed to comply with the requirements of section 6-1.1-37-7(e) by reporting less than the total assessed value of the taxable property that it was required by law to report. See IND. CODE ANN § 6-1.1-37-7(e) (West Supp.1998). 2 The Court stated that once the actual cost of the steel was determined, the Court would then determine the amount of the penalty to be applied for the undervaluation of taxable personal property as required by statute. See id.
In Dav-Con I, of the seven companies owning steel located on Dav-Con's premises, four companies, Naylor Pipe, Mitsui, Venske Steel, and International Metals were found not to have reported their steel. 3 Pursuant to the Court's order remanding this case, the State Board conducted further proceedings For the assessment of Venske Steel, the State Board hearing officer concluded that because Naylor Pipe and Mitsui made no distinction between value and cost in their two responses, it would be reasonable to use the figure previously reported by Venske ($3,872.85) again. For International Metals, the hearing officer estimated the cost of inventory ($5,000) based on the storage invoice of the property. (Stip.Ex. D). On July 28, 1995, pursuant to this Court's remand order, the State Board held a hearing regarding the issues involved. Testimony and exhibits were received into evidence at the hearing. The end result of the hearing was that the amount of the assessment did not change from what was previously determined by the State Board, and the twenty percent (20%) penalty on the underreported amount was reinstated. On October 6, 1995, Dav-Con filed this original tax appeal to challenge the reassessment and the twenty percent penalty. Additional facts will be supplied as necessary.
and, again, contacted the four companies that owned steel in Dav-Con's possession in order to ascertain the actual cost of the steel. In reply, two of the four companies, Naylor Pipe and Mitsui, stated that the actual cost of the steel was either the same or "materially" the same as the value of the steel previously reported. Accordingly, the State Board hearing officer adopted these figures for the assessment of the steel owned by Naylor Pipe and Mitsui. Of the remaining two companies, one company, Venske Steel, did not respond, and correspondence to International Metals was returned by the post office as undeliverable. (Stip.Ex. F).
The Court accords great deference to the State Board when it has acted within the scope of its authority. Garcia v. State Bd. of Tax Comm'rs, 694 N.E.2d 794, 795-96 (Ind. Tax Ct.1998). The Court will reverse a final determination by the State Board only if it is unsupported by substantial evidence, constitutes an abuse of discretion, exceeds statutory authority, or is arbitrary and capricious. Id.
Dav-Con makes three contentions regarding the first issue. The arguments will be discussed independently. First, Dav-Con contends that IND.CODE ANN § 6-1.1-2-4(a) (West 1989) (amended 1997) imposes primary liability for personal property tax on the owner of the property on the relevant assessment date. Second, Dav-Con contends that the correspondence sent to the four companies by the State Board was flawed, thereby invalidating the assessment. Finally, Dav-Con contends that the assessment itself was erroneous.
Dav-Con argues that the primary liability for the personal property tax on the steel falls on the owners of the steel. Consequently, in Dav-Con's view, the State Board is required to hold the owners of the steel liable for the personal property tax before it may hold Dav-Con liable for the tax. This Court rejected a substantially similar argument in Dav-Con I. In Dav-Con I, this Court held that the State Board had the authority under subsection 6-1.1-2-4(a) to hold the possessor of personal property liable for the tax on that property. See Dav-Con I, 644 N.E.2d at 194-96. Moreover, subsection 6-1.1-2-4(a) does not forbid the State Board from holding possessors of personal property liable for personal property tax without first holding the owners of that personal property liable for that tax. See Mid-America Mailers, Inc.v. State Bd. of Tax Comm'rs, 639 N.E.2d 380, 384 (Ind. Tax Ct.1994). As a result, the State Board is not forced to pursue the owners of the steel for payment of the personal property tax before it may pursue Dav-Con for payment of that tax. 4 Therefore, Dav-Con's argument is without merit.
Dav-Con contends that the State Board did not obtain the "true-cost" of the steel because the correspondence sent by the State Board to the four companies did not adequately define cost. As a result, in Dav-Con's view, the figures provided by the companies that did respond to the correspondence were flawed. Therefore, according to Dav-Con, the State Board's final determination based on those figures was invalid.
Under the applicable regulation, the primary tool for ascertaining the cost of an item is the "price paid or consideration given to acquire [the item]." IND. ADMIN. CODE tit. 50, r. 4.2-5-5(a) (1996); see also Dav-Con I, 644 N.E.2d at 197; Mid-America Mailers, 639 N.E.2d at 385-86; IND ADMIN. CODE tit. 50, r. 4-2-5-1(a)(3) (1996). Acting on the remand instructions, the State Board sent out a second set of correspondence to the four steel companies in order to determine the cost of the steel. This correspondence posed the following questions:
1. Was the amount you previously submitted the same as the cost of the inventory stored at Dav-Con, Inc? Yes___ No___;
2. If the amount you previously submitted was not cost[,]what did the amount represent?_____; and,
3. If the amount you previously submitted was not cost[,]please provide the cost of the inventory. $_____
(Stip.Ex. D). The letter the State Board sent to International Metals was different because International Metals had not responded previously. The correspondence to International Metals stated:
Pursuant to the court's order[,] the State Board is now requesting that you submit the cost of your inventory located at Dav-Con, Inc. on March 1, 1992 per the enclosed storage invoice. Please submit the cost ... by May 5, 1995. Copies of any information that you submit will be shared with Dav-Con. The field auditor originally estimated the amount of the inventory at $5,000.00. If you do not respond to this request by May 5, 1995, the State Board will consider the field auditor[']s estimate amount of $5,000.00 to be the best estimate of cost.
(Stip.Ex. D).
In Dav-Con I, the correspondence sent to the companies was insufficient in that it sought the value of the steel rather than the cost of the steel. On remand, the State Board followed the instructions given by this Court in that the second set of correspondence did include language that sought the cost of the steel. (Stip.Ex. D). Dav-Con received copies of the letters sent by the State Board to the four companies and their responses. Dav-Con, at that time, did not complain of the wording of the letters. Nor did Dav-Con attempt to contact the four companies to obtain cost estimates. Moreover, Dav-Con did not present any evidence to refute the State Board's proposed figures or to help in any other way to establish cost. . Dav-Con asks the Court to hold that the State Board's final assessment determination is invalid simply because it was based on responses to correspondence that did not specifically define cost.
It is true that the State Board's correspondence could have defined cost with greater precision. This fact, in and of itself, does not entitle Dav-Con to relief. Instead, under this Court's standard of review, Dav-Con must demonstrate that the State Board's correspondence was not a reasonable method of ascertaining cost of the steel.
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